| Consensus | Consensus Range | Actual | Previous | |
| HICP - Y/Y | 2.7% | 2.2% to 3.1% | 2.5% | 1.9% |
| Narrow Core - Y/Y | 2.4% | 2.3% to 2.7% | 2.3% | 2.4% |
Highlights
Consumer prices are expected to rise 1.2 percent in March month-on-month, translating into a 2.5 percent year-on-year increase, a marked gain from the 1.9 percent rate recorded in February, as energy prices bite. The results were below the median of an Econoday survey of economists' forecasts calling for a 2.7 percent headline rate and 2.4 percent core reading.
Consumers spent 6.8 percent more on energy in March than they did in February, and 4.9 percent more than March of last year, as the conflict in the Middle East is pushing energy prices here. In January and February, energy was down 4.0 percent and 3.1 percent respectively.
Excluding energy costs, inflation was up 0.7 percent month-on-month and 2.3 percent year on year, which shows that inflationary pressures are more broadly evident.
Most of the components of CPI are above the 2.0 percent year-over-year increase that is regarded as acceptable by the European Central Bank. Food, alcohol, and tobacco prices are up 2.4 percent from March of last year, with services increasing 3.2 percent.
Today's data is the first verdict on the effects of the situation in the Middle East which, even if resolved soon, will continue to impact prices. To what extent is something that will be on the radar of the ECB which will have to now balance inflation with a likely slowdown in economic activity.
Market Consensus Before Announcement
Oil price surge driving consumer prices up, expected at 2.7 percent in March versus 1.9 percent in the February final. This is what the ECB President Christine Lagarde was talking about when she threatened rate hikes.
Definition
The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the Eurozone, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.